Essential services label comes with a price

Study finds loss of power to strike results in higher costs
By Gordon Sova
|hrreporter.com|Last Updated: 11/12/2008

Recently, the governments of Nova Scotia and Saskatchewan have faced controversy for trying to extend the range of essential services within their public sectors. In Nova Scotia, there is still a bill before the House of Assembly curtailing the right of healthcare workers to strike. Unions were vocal in denouncing it. In Saskatchewan, a bill created categories of essential services in a province that had previously not had them. That statute is being appealed to the courts and before the International Labour Organization.

Partisan motivations aside, the principle behind the designation of essential services is that services that ensure basic public safety and security must be maintained, at a minimal level at least, during any industrial action. Given that the weapon of a strike is severely blunted after an essential services designation, if it exists at all, interest arbitration is the most common method of arriving at new collective agreements for these employees.

Benjamin Drachis is the author of a study entitled No Free Ride: The Cost of Essential Services Designation, released by the C.D. Howe Institute on September 11, 2008. He poses the question of whether there is a tradeoff for the union’s losing its power to strike (either totally or effectively). The study compares the cost of wage increases between 1976 and the present in bargaining units over 500 employees that were and were not covered by an essential services designation. Interest arbitration was not mandated in every case, but it was common.

Drachis finds that “declaring a service essential has the effect of increasing average annual wage hikes by 0.28 to 0.41 percentage points. In 2007, a nominal annual wage growth of public sector employees was around three percentage points, meaning that the effect of [an] essential services designation was as much as a 13 per cent wage premium in the negotiated nominal increase. [An] essential service designation has a very large effect relative to the total real wage increase.”

He also points out that essential services legislation has not been completely effective in ending strikes in sectors such as education and transit that are “not truly essential” to public safety. In fact, it increases it by five per cent: Montreal transit is an example.

In right-wing circles, an essential services designation is seen as a way to stop unions from “holding people hostage” through striking. The City of Toronto is currently considering asking the province to designate the Toronto Transit Commission as an essential service for this reason. However, it has been long recognized that interest arbitrators tended to be generous with raises and stingy with new benefits, and this trade-off should be understood by those who advocate this path.

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